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To: ild who wrote (249725)	7/13/2003 9:36:53 AM
From: Knighty Tin	Respond to of 436258

ild, I don't think there will be huge implications. The muni market may be roiled a bit as the munis have to raise more and more money. But reality won't slow down this fake bull market, not if it's concentrated in one state. The Feds won't help and may even attack Calif. again if they don't get rid of Davis. Flubya is just itching to enforce martial law in California, and that would hurt markets.

To: ild who wrote (249725)	7/13/2003 11:44:17 PM
From: ild	Read Replies (1) \| Respond to of 436258

Sunday July 13, 2003 : Weekly Market Comment Copyright 2003, John P. Hussman, Ph.D., As of last week, the Market Climate for stocks remained characterized by unfavorable valuations and favorable trend uniformity, holding us to a constructive investment position. That said, the investment and economic picture includes an unusual range of cross-currents that individually have the potential to derail this favorable Climate, and in combination were sufficient to move us to a 50% hedged position on Friday. I've frequently noted that our willingness to take market risk here is not based on investment merit. Stocks remain quite overvalued here. While valuation alone has very little influence over short-term returns, it is the primary determinant of long-term ones. From current levels, a buy-and-hold approach on the S&P 500 is likely to deliver total returns somewhere in the range of just 2-5% annually over the coming decade - though almost certainly in an exciting way, through a series of bull and bear movements. The underlying force in the recent rally is therefore speculative merit, which we read out of favorable trend uniformity. Put simply, investors have been willing to take greater levels of market risk, which shows up in falling risk premiums and uniformly rising prices across a wide range of assets. While speculative merit is not unusually fragile, it is very dependent on the robust willingness of investors to take on increasing amounts of risk, and it is here that we're starting to see difficulties, ranging from concerns about Iraq, rising energy prices, persistent weakness in employment (last week's new claims figures were very disappointing in my view), and excessive debt levels. Iraq remains the most probable issue that could rekindle risk aversion by investors. One needs only a cursory knowledge of past occupations - the U.S. in the Philippines, Italy in Libya, France in Algeria, Britain in India, and so on - to understand their terrible cycle of frustration and difficulty even for the best troops, including ambushes by insurgents who easily melt away into the population. As Harry Truman once said, "There is nothing new in the world except the history that you do not know." The task now is to extricate the U.S. from the role of occupier. The military task has been completed, but our troops remain at risk because they are being called upon not merely as peacekeepers but as enforcers of foreign governance. The greatest act of respect for our troops would be for the Administration to abandon its aspirations of unilaterally shaping Iraq, to shift enforcement actions to a broader coalition of NATO forces, and to increase the role of the U.N. in the civil and humanitiarian tasks of rebuilding. On the eve of the war, our troops remarked hopefully that the quickest way home would be through Baghdad. It's time to fulfill those hopes. Our nation, our principles, and our troops deserve no less. From the standpoint of market behavior, we still observe favorable trend uniformity, but after a brief period of "clean" action, we've got another set of fresh divergences. Drawing on Dow Theory for an example, it's notable that we've got something of a "dual nonconfirmation" going - a signal of increasing ambivalence among investors. After a new high in the Dow Industrials that the Transports failed to confirm in early June, the Transports have now rallied to a new high which is unconfirmed by the Industrials. While selling pressure is not particularly evident here, recent rallies have been on weaker volume. Our own, more statistical models are also showing fresh divergences. These may be cleared by subsequent action, but there's enough evidence to tread more conservatively. Still, it is important to remember that this remains a constructive market environment. We've increased our level of hedging because of risk considerations, more than return considerations. We remain positioned to benefit primarily from market advances, and at present, there remains enough prospect of such advances to maintain some exposure to market risk. From current levels, an advance of even 3-4% would be sufficient to take stocks into historically dangerous levels of overvaluation, which would would make us much more defensive in response to any additional divergences. For now, however, a moderately constructive investment stance is consistent with the prevailing return/risk opportunities in stocks. hussman.com